Nearshoring: competitiveness by region, globally

With the global health crisis of Covid-19, the effects on the comercial activities and the situation on the production countries made that different analysts and consulting firms reviewed the fundamental aspects of the world supply chains, tooking nearshoring to a key position for economic reactivation.

That’s the reason why we will review the global perspectives for global manufacture in a context of regional production, taking as a reference the “Covid-19 and Global Manufacturing Supply Chains” report made by Savills, an UK property consultant, and considering nearshoring to Mexico as an important topic for the country and the industries all over the world.

Nearshoring Potential Index

According to the British firm, the offshoring low production costs are no longer the only critical factor for manufacturers that want to create a supply network which could resist external crisis and interruptions similar to the Coronavirus’ issue.

That’s why nearshoring based investment prospects (with the manfacture processes being based in countries located near the consumption nations) must look for a balance between operation costs (workforce, energy supply) and logistic factors (distance, time difference), infrastructure quality, legal regulations, a positive commercial environment and a strong export base.

With all these indicators and taking notice of different fonts such as the International Labour Organization, the World Economic Forum and Oxford Economics, Savills made its own Nearshoring Potential Index report, using as a reference the main consumption markets in Asia, Europe and North America.

Source: Savills Research; Manufacturing labour costs: Statista, Eurostat, ILO, The Conference Board: Energy costs: GlobalPetrolPrices.com; Infrastructure and trade openness: World Economic Forum, Oxford Economics.

Regional top countries

As we can appreciate down in the graphic, Vietnam is the number 1 country in the Nearshoring Potential Index.

Savills noted that, beside having a manufacturing base with fast growing rate, this country has also promote important initiatives of integration to the gobal markets, using the recently approved commercial deal with the European Union and fighting corruption. Vietnam also had a fast and effective answer to face the Covid-19 pandemic.

There are another prominent Asian countries in the report:

• Indonesia (3^rd) and Thailand (7^th), with labor costs 50% below those of China.
• Taiwan (6^th) has infrastructure and a flexible business environment, it was not affected by the trade war between China and the United States (because it’s in the middle of a separation quarrel with the Asian giant).
• Singapore (12^th) has higher labour costs, but compense this with an excelent logistic infrastrucure and commercial opening.
• India (16^th) recently impulsed the opening for foreign investment to almost 100% of manufacture areas.

In Europe, the eastern side of the continent concentrates the countries with higher nearshoring potential, because of the lower operations costs and the direct connection with bigger markets in the west through railways.

Ukraine is the best positioned (2^nd in the world) taking advantage of the unusually low labour costs for the region. Serbia is the second country (4^th in the world) and Czech Republic is the third in the area (5^th in the world) using their location and communications advantages and their export base.

Finally, Mexico’s nearshoring potential is the most competitive in North America (15^th in the world) with labour costs which are 1/10 of the United States’ labour costs and the activation of the trade agreement between Mexico-United States-Canada stimulating the investments in the country.

As the world return to commercial regular operations and supply chains gets in order as we used to know before the Coronavirus’ situation, nearshoring to Mexico presents as an important opportunity for the country in order to develop the industrial operations. Manufacturing, logistics and pharmaceutical are just three areas in which Mexico has a big growing potential, as we can notice by the requirements for industrial installations in some regions, such as Monterrey, Mexico City, and the State of Mexico.

Frontier Industrial develops industrial installations and landscape in the most important areas for Mexico’s economic activities, offering industrial buildings for lease, industrial land for sale and Build to Suit projects. Contact us if you want to know our options in industrial parks.